Sarasota Memorial Healthcare Foundation, Inc. Planned Giving Office 1515 South Osprey Avenue, Suite B-4 Sarasota, FL

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1 Sarasota Memorial Healthcare Foundation, Inc. Planned Giving Office 1515 South Osprey Avenue, Suite B-4 Sarasota, FL Charitable Gift Substantiation Requirements by Conrad Teitell, A.B., L.L.B., L.L.M. The federal government encourages your generosity by allowing you to deduct your gifts to charities on your income tax return if you itemize. However, you must follow the IRS s reporting and substantiation rules to assure your charitable deduction. I hope that this letter highlighting the IRS s requirements will be helpful to you when preparing your federal income tax return for the year 2012 (due by April 15, 2013). The rules are numerous and overlapping. This document addresses: (1) reporting requirements for non-cash charitable contributions; (2) rules for hard-to-value property; and (3) receipts you need to substantiate cash and non-cash contributions. For some non-cash charitable gifts, Form 8283 (Non-cash Charitable Contributions) must be filed. That form and its instructions are enclosed. The form is the most current available today. Before filing your income tax return, I suggest that you check the IRS s latest forms and instructions for any last-minute changes. If your non-cash gifts for the year total more than $500, you ll have to include Form 8283 with your income tax return. Section A the simpler part of the form is used to report gifts valued at $5,000 or under. Section A can be completed by you or your tax return preparer. When the property s value is more than $5,000 ($10,000 for closely held stock), you ll generally need to have it appraised. The appraiser s findings are reported in Section B of Form Those rules also apply if you give similar items of property with a total value above $5,000 even if you gave the items to different charities. The IRS says that similar items of property are items of the same generic type, including stamps, coins, lithographs, paintings, books, non-publicly traded stock, land and buildings. So, for example, if you have six paintings worth $1,000 each and contribute each one to six different charities, the appraisal rules would apply. Special rule for publicly traded securities. You don t need an appraisal or Section B of Form 8283 for gifts of publicly traded securities, even if their total value exceeds $5,000. But you must report those gifts (when the value is more than $500) by completing Section A of Form 8283 and attaching it to your return. Closely held stock. For gifts of non-publicly traded stock, an appraisal is not required as long as the value is not over $10,000, but part of Section B of Form 8283 must be completed if the value is over $5,000. And, if the gift is valued at over $10,000, then both an appraisal and Section B of Form 8283 are required. If you need an appraisal, the gift must be made within 60 days after the date of the appraisal. The property can be appraised after the date of the gift (the appraisal to state the property s value on the date of the gift). You must receive the appraisal by the due date (including extensions) of the return on which the deduction is first claimed. Section B of Form It must be signed by the appraiser and by the charity that received your gift. It s essential to complete Section B of Form 8283 and to attach that form to your tax return.

2 Qualified appraisal. A qualified appraisal is an appraisal document that is prepared by a qualified appraiser in accordance with generally accepted appraisal standards and otherwise complies with the qualified appraisal requirements. Qualified appraiser. The requirements to be a qualified appraiser are stringent. The definition is critically important: no qualified appraiser, no deduction for property gifts valued over $5,000 (over $10,000 for closely held stock). Under the current definition, a qualified appraiser is an individual who: (1) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements (established by the IRS in regulations); (2) regularly performs appraisals for which he or she receives compensation; and (3) can demonstrate verifiable education and experience in valuing the type of property for which the appraisal is being performed. An individual has education and experience in valuing the relevant type of property, as of the date the individual signs the appraisal, if the individual has successfully completed (for example, received a passing grade on a final examination) professional or college-level coursework in valuing the relevant type of property, and has two or more years of experience in valuing the relevant type of property or earned a recognized appraisal designation for the relevant type of property. Ifs, ands, buts. A qualified appraiser may not be related to or regularly employed by you or the charitable donee and may not be a party to the transaction by which you acquired the property being appraised, unless the property being appraised is donated within two months of the date of acquisition and its appraised value does not exceed the purchase price. Appraisal fee. Generally, no part of the appraisal fee can be based on a percentage of the property s appraised value. An appraisal fee isn t a charitable gift. If you itemize, the appraisal fee is deductible on your income tax return as a miscellaneous deduction. But it s only deductible if it together with other miscellaneous deductions exceeds a 2% of adjusted gross income floor. Special rule for art gifts. If you donate artworks with a total value of $20,000 or more, your return has to include a copy of the signed appraisal itself, not just Section B of Form If any single artwork is worth $20,000 or more, IRS may ask you for an 8 10 color photo (or a 4 5 color slide) of the donated property. You don t have to send the photo with your tax return, just have one ready. Special rule for very large gifts. For gifts valued at over $500,000, the donor must attach the qualified appraisal as well as Section B of Form 8283 to his or her tax return. For purposes of the dollar thresholds, property and all similar items of property donated to one or more charitable donees are treated as one property. As noted above, a copy of the appraisal must be attached to the tax return when an artwork is worth $20,000 or more. Gifts of clothing or household items. No deduction is allowed for a contribution of clothing or a household item unless the item is in good condition or better at the time of the contribution and the donor meets the substantiation requirements. This rule doesn t apply to a contribution of a single item of clothing or a household item for which a deduction of more than $500 is claimed if the donor submits with the return on which the deduction is claimed a qualified appraisal prepared by a qualified appraiser and a completed Form 8283 (Section B). The term household items includes furniture, furnishings, electronics, appliances, linens, and other similar items. Food, paintings, antiques, and other objects of art, jewelry, gems, and collections are not household items.

3 Used car donations. The deduction for charitable contributions of autos, other motor vehicles, boats and airplanes exceeding $500 depends on the use of the vehicle by the charity. A deduction is not allowed unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment by the charity. If the charity sells the vehicle without any significant intervening use or material improvement of the vehicle, the deduction is the smaller of the gross proceeds from the sale or the vehicle s fair market value on the date of the contribution. The acknowledgment, which is on IRS Form 1098-C (or a statement containing the same information), must contain the name and taxpayer identification number of the donor, and the vehicle identification (or similar) number. The acknowledgment must provide a certification that the vehicle was sold in an arm s length transaction between unrelated parties, and state the gross proceeds from the sale. If the charity makes a significant intervening use or makes a material improvement to the vehicle, the deduction is the fair market value at the time of the contribution. The acknowledgment must contain a certification of the use or material improvement of the vehicle and the duration of that use, and a certification that the vehicle will not be transferred in exchange for money, other property, or services before completion of that use or improvement. If the charity gives or sells the vehicle to a needy individual at a price significantly below fair market value in direct furtherance of a charity s charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation, the deduction is the fair market value at the time of the contribution. You must obtain an acknowledgment from the charity and substantiate the fair market value. Contemporaneous written acknowledgment. The charity must provide a written acknowledgment within 30 days of sale of a vehicle that is not significantly improved or materially used by the donee, or, in all other cases, within 30 days of the contribution. Penalties. A charity will be penalized for knowingly furnishing a false or fraudulent acknowledgment, or knowingly failing to furnish a timely acknowledgment showing the required information. You might want an appraisal (even if your gift doesn t require one) in case you have to convince the IRS of the property s worth. And Form 8283 asks how you valued your gift. Generally, if a charity receives a gift that is subject to the appraisal rules (and it signed Form 8283), the charity must report on Form 8282 to both the IRS and the donor if it disposes of the gift within three years. However, the charity needn t report its disposal of an item that you certify is worth $500 or less. Form 8283 has a section for that purpose (Section B, Part II). Bank record or written communication required. No income tax charitable deduction is allowed for a gift in the form of cash, check, or other monetary gift unless the donor substantiates the deduction with a bank record or a written communication from the donee showing the donee s name, the contribution date, and the gift amount. Monetary gift includes a transfer of a gift card redeemable for cash, and a payment made by credit card, electronic fund transfer, an online payment service, or payroll deduction. Bank record includes a statement from a financial institution, an electronic fund transfer receipt, a canceled check, a scanned image of both sides of a canceled check obtained from a bank website, or a credit card statement. Written communication includes electronic mail correspondence. Substantiation of charitable contributions of less than $250. An income tax charitable deduction isn t allowed for non-cash charitable contributions of less than $250 unless the donor maintains for each contribution a receipt from the donee showing: (1) the name and address of the donee; (2) the date of the

4 contribution; (3) a description of the property in sufficient detail under the circumstances (taking into account the value of the property) for a person who is not generally familiar with the type of property to ascertain that the described property is the contributed property; and (4) for securities, the name of the issuer, the type of security and whether the securities are publicly traded securities. Substantiation requirements for contributions of $250 or more. To deduct any gift of $250 or more, you must have a written receipt from the charity describing (but not valuing) the gift. If any goods or services were given to you in exchange for your gift, the receipt must describe them and contain a good faith estimate of their value. If the charity provided no goods or services in consideration of your gift, the written receipt must so state. The receipt need not contain your Social Security number. Generally, separate payments are considered separate contributions for purposes of the $250-or-more threshold unless the payments are made on the same day. Cash gifts. For cash gifts, regardless of the amount, record keeping requirements are satisfied only if the donor maintains as a record of the contribution, a bank record or a written communication from the donee showing the name of the donee and the date and amount of the contribution. A bank record includes canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity and the transaction posting date. The record keeping requirements will not be satisfied by maintaining other written records. Donations of money include those made in cash, by check, electronic funds transfer, credit card and payroll deduction. Contributions made by payroll deduction. For a charitable contribution made by payroll deduction, a donor is treated as meeting the substantiation requirements if no later than the date for receipt of substantiation the donor obtains: (1) a pay stub, Form W-2, Wage and Tax Statement, or other employer-furnished document that sets forth the amount withheld during the taxable year for payment to a donee; and (2) a pledge card or other document prepared by or at the direction of the donee that shows the name of the donee. Transfers to charitable remainder trusts. The above substantiation requirements don t apply to a transfer of cash, check, or other monetary gift to a charitable remainder annuity trust or a charitable remainder unitrust. The requirements do apply, however, to a transfer to a pooled income fund. So it is necessary to get a timely receipt meeting the $250-or-more substantiation rules for a gift to a pooled income fund. Transfers to gift annuities. When the gift portion of a gift annuity or a deferred payment gift annuity is $250 or more, a donor must have an acknowledgment from the charity stating whether any goods or services in addition to the annuity were provided to the donor. If no additional goods or services were provided, the acknowledgment must so state. The acknowledgment need not include a good faith estimate of the annuity s value. Charitable remainder gifts in personal residences and farms. Regulations don t specifically deal with these gifts. However, to be safe, get a timely receipt meeting the $250-or-more substantiation rules. Grantor charitable lead trusts for which an income tax charitable deduction is allowable. The regulations don t specifically deal with these gifts. Charitable remainder trusts, as stated above, aren t subject to the substantiation rules. Charitable lead trusts may also be exempt. Nevertheless, get a timely receipt meeting the $250-or-more rules. THE RECEIPT-IN-HAND RULE THIS IS CRUCIAL: You must have the receipt in your possession before you file your income tax return. If you file your return after the due date (or after an extended due date), the receipt must nevertheless have been in your hand by the due date (plus any extensions). If you made a gift of $250 or more to a religious organization and received in return solely an intangible religious benefit that generally isn t sold in commercial transactions outside the donative context (e.g.,

5 admission to a religious ceremony), the receipt must say so, but need not describe or value the benefit. But this exception doesn t apply, for example, to tuition for education leading to a recognized degree, travel services, or consumer goods. If a charity receives a gift of over $75 from you for which you received or were entitled to a benefit (other than solely an intangible religious benefit). The charity must, in connection with the solicitation or receipt of the gift, give you a written statement that: (1) informs you that the gift deduction is limited to the excess of any money (and the value of any property other than money) contributed by you over the value of the goods or services provided by the charity; and (2) provides you with a good faith estimate of the value of the goods or services. However, both you and the charity may generally disregard token benefits you receive for a contribution. The IRS has ruled that a charitable gift is fully deductible if it is made in a fundraising campaign in which the charity informs its donors how much of their payment is a deductible contribution and: (1) the donor receives benefits having a fair market value of $99 or 2% of the payment, whichever is less; or (2) the donor gives the charity at least $49.50 and receives a low-cost or token item (e.g., a bookmark, mug or T-shirt). The item must bear the charity s name or logo and cost the distributing charity or the charity on whose behalf the item is distributed no more than $9.90. Further, donors needn t reduce their deductions when they receive unsolicited free items that cost the charity or the charity on whose behalf the item is distributed no more than $9.90. Those token benefit amounts are for 2012 charitable gifts. The dollar figures are adjusted annually for inflation. Please call if you have any questions and the earlier the better so that last-minute problems can be avoided. Conrad Teitell This is not intended as legal, tax, financial or other advice. So, check with your advisor on how the rules apply to you.